Deal looks attractive for both parties but could still be trumped.
Vodafone (LSE: VOD) has finally gone public with a 38p per share offer to buy Cable and Wireless Worldwide (LSE: CW).
The offer values the enterprise communications company at £1,044m -- an 18% premium on Friday's closing price of 32p per share, and around 100% more than the company was worth prior to the start of the bid process on 10 February.
The offer has been unanimously accepted by CWW's directors and already has the backing of both companies' financiers and 18.58% of CWW's shareholders. CWW chairman John Barton made his intentions clear when he described the offer as "an exciting opportunity … to benefit from the many advantages that will come from being part of the Vodafone Group".
Although former bidder Tata retained the right to make a counteroffer to any future bid, this seems unlikely as press reports suggest that it was having trouble raising the finance for a competitive offer and was previously offering less than 25p per share.
As a Vodafone shareholder, I think that this deal represents excellent value and should help fuel further earnings growth for the world's largest mobile operator. Here's why.
1. Cheap UK data network
One of the main attractions for Vodafone is CWW's large UK fibre network. Vodafone, like other mobile operators, is struggling with data capacity as a result of the explosion in internet traffic from its customers' smartphones.
The cost of building out a UK fibre network from scratch is extremely high; certainly far higher than the £1bn price tag attached to CWW.
2. Enterprise growth
Vodafone is thought to be keen to grow its corporate business to compensate for slowing growth in the consumer mobile market. CWW has an attractive portfolio of enterprise customers, including Tesco (LSE: TSCO) and various public sector organisations.
CWW's fixed-line network will also mean that Vodafone can offer integrated (landline, mobile and data) services to corporate customers -- the appeal of which seems to be confirmed in Vodafone CEO Vittorio Colao's statement today:
"The acquisition of Cable & Wireless Worldwide creates a leading integrated player in the enterprise segment of the UK communications market and brings attractive cost savings to our UK and international operations."
3. Undersea assets
The other main arm of CWW's business is its undersea cable network. Reports suggest that Vodafone will sell this off, which will recoup some of the costs of the deal.
4. Cost neutral?
According to a recent research note from Bank of America Merrill Lynch analysts: "Vodafone could benefit from a combination of revenue synergies, cost synergies and tax assets which together could be worth £1bn."
Voda remains a buy
All of this simply reinforces my opinion that Vodafone makes an excellent long-term buy for investors -- a decision made even simpler by Vodafone's tasty 5.9% dividend yield.
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> Roland owns shares in Vodafone and Tesco. The Motley Fool owns shares in Tesco.